Legislature(1995 - 1996)

04/10/1996 08:20 AM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
  HOUSE BILL 543                                                               
                                                                               
       "An Act  establishing a  preference when  entering into                 
       state airport land leases."                                             
                                                                               
  REPRESENTATIVE GARY DAVIS  testified in  support of HB  543.                 
  He  stated  that  the  Alaskan  aviation industry  has  made                 
  significant progress and investment  in developing a  system                 
  which better meets  the transportation  needs of the  State.                 
  That system is different than the  one used by other states.                 
                                                                               
                                                                               
  Regulations have recently  been proposed  that could have  a                 
  negative impact on  the industry.  The changes suggested may                 
  threaten  the   aviation   infrastructure   in   Alaska   by                 
  discouraging investment  and development.   Private aviators                 
  stand to  lose any  physical improvements  added to  airport                 
  structures at the conclusion of their lease.  In some cases,                 
  the lessees have  developed their leasehold.   The potential                 
  loss  could  foster  reluctance  by  the private  sector  to                 
  continue providing  the  infrastructure  at  aviation  sites                 
  across the State.                                                            
                                                                               
  He added that  the purpose for State  involvement in airport                 
  management  should  be  to  promote,  encourage  and develop                 
  aviation in Alaska.   It is  important that airport  leasing                 
  policy and practice in  Alaska remain on a first  come first                 
  served basis.                                                                
                                                                               
  HB 543 would give the current  lessee preference if they are                 
  in compliance with the terms of  the existing lease and have                 
  made substantial  financial investments  in developing  that                 
  land.                                                                        
                                                                               
  Representative Davis provided  a sectional  analysis of  the                 
  bill.  Representative  Martin asked if a  requirement exists                 
  in  which "fair  market value"  must be  considered for  the                 
  leased space.   Representative Davis advised that  each five                 
                                                                               
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  years, a reevaluation will  occur of the lease.   The market                 
  value  and  rate   of  the  lease  would   be  indicated  in                 
  regulation.                                                                  
                                                                               
  JACK BURMINGHAM, (TESTIFIED VIA TELECONFERENCE), ALASKA  AIR                 
  CARRIERS  ASSOCIATION, ANCHORAGE,  stated that  the schedule                 
  implemented in 1991 by the  Department of Transportation and                 
  Public Facilities  (DOTPF) received strong opposition by the                 
  current  lease holders.  There have been instances where the                 
  rates were  challenged because the scheduled  rates exceeded                 
  the fair market  value of the land.  No one has been getting                 
  airport land at a "cheap" rate.                                              
                                                                               
  Co-Chair  Foster  thanked  the  sponsor  for  proposing  the                 
  legislation.   He  recalled  that ten  years  ago the  State                 
  decided  to  put  all  leases  to   bid.    Co-Chair  Foster                 
  emphasized that a company with  a sizeable investment stands                 
  to loose a  tremendous amount  through the leasing  process.                 
  The proposed legislation addresses  the availability of land                 
  and  gives  preference to  those  companies already  holding                 
  leases.  He hoped that the  legislation would force DOTPF to                 
  open more land for zoning of aircraft.                                       
                                                                               
  Co-Chair  Foster  asked  what would  happen  to  the hangar,                 
  concrete floor and  fuel tank when  a company was forced  to                 
  relinquish their  lease.  He  pointed out that  market rates                 
  have  been met.   Mr.  Burmingham  added that  the committee                 
  substitute as passed  by the House Transportation  Committee                 
  had good intent but would  not address the current concerns.                 
  The primary area of concern was with the Findings Section in                 
  Section #1, and Subsection (c), Section #3. The ownership of                 
  the lease-hold improvements  is integral in a  state renewal                 
  right.    He  stipulated  that the  company  who  makes  the                 
  improvements must own those improvements.                                    
                                                                               
  Mr. Burmingham reiterated that  air carriers are  requesting                 
  that language exist  which clearly  defines a renewal  right                 
  and a  clear understanding that  the lease holders  who have                 
  made improvements, own those improvements.                                   
                                                                               
  ELISABETH   HICKERSON,   (TESTIFIED   VIA   TELECONFERENCE),                 
  ASSISTANT  ATTORNEY GENERAL,  DEPARTMENT OF  LAW, ANCHORAGE,                 
  noted that language which exists would clarify the procedure                 
  to  be used.    She noted  that change  was  to Section  #3,                 
  deleting "shall"  and inserting  "may", clarifying  that the                 
  holding lessee could  receive the right to the lease without                 
  competition.  Other  wording has also been  considered.  She                 
  added that  an  additional concern  was to  the time  limit.                 
  Currently, in  statute, the limit is fifty-five  years.  The                 
  Department of Law's position is that the lease should amount                 
  to fifty-five  years,  affecting concerns  the  court  might                 
  have.    She added,  inclusion  of the  Findings  Section is                 
                                                                               
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  extremely  important   to  expand   judicial  scrutiny   and                 
  constitutional challenge.                                                    
                                                                               
  Representative Brown  distributed a  handout titled  "DOT&PF                 
  Comments to Suggested Changes".  [Copy  on file].  She asked                 
  for  further discussion  of disposition and  improvements to                 
  the site and  how that  would be addressed.   Ms.  Hickerson                 
  replied that the issue of disposition and improvements was a                 
  policy issue.  She added that all leases contain an existing                 
  provision that discuss  the issue of improvements at the end                 
  of those leases.   Most are written in such a way that there                 
  exists  an  option to  sell, remove  or  vest in  the State.                 
  Representative  Brown  questioned  where   that  clause  was                 
  located  in  the  version before  the  Committee.   Co-Chair                 
  Hanley pointed out that was  delineated in Section (e), Page                 
  3.                                                                           
                                                                               
  KURT    PARKAN,    DEPUTY   COMMISSIONER,    DEPARTMENT   OF                 
  TRANSPORTATION   AND   PUBLIC   FACILITIES,  remarked   that                 
  currently, every lease  has reference to the  disposition of                 
  the investments made.                                                        
                                                                               
  (Tape Change, HFC 96-107, Side 2).                                           
                                                                               
  Mr. Parkan stated that each lease  has three options written                 
  into it including a removal and purchase.                                    
                                                                               
  Co-Chair  Foster  stated  that  in  the 1970's  and  1980's,                 
  companies had the right to renew their contract each year at                 
  the  adjusted  inflation  rate.   He  pointed  out  that the                 
  current  options  are  not fair  for  the  company currently                 
  holding the lease.  Co-Chair  Hanley agreed, indicating that                 
  concern had been suggested by many people.                                   
                                                                               
  Mr. Parkan acknowledged that  it was a problem.   He thought                 
  that it would be  fair to the purchaser of  the improvements                 
  to  purchase it  at the  appraised value.    Co-Chair Hanley                 
  asked if that was written into the lease.  Mr. Parkan stated                 
  that the language written into the leases  was not specific.                 
  Currently,  the Department  is looking  into language  which                 
  would address the  determination of the "fair  market value"                 
  of the improvements made.                                                    
                                                                               
  Co-Chair   Hanley  mentioned  that   the  concerns  are  the                 
  disposition and the value needed to  be paid for the initial                 
  investment.  Co-Chair Foster maintained that the regulations                 
  were created to  fix something that  was not "broken".   Mr.                 
  Parkan agreed that Section (e), Page 3, would not need to be                 
  included  in  statute.    The  section  which  needs  to  be                 
  addressed  in statute  is  the option  to  allow someone  to                 
  continue  lease renewal.    The first  right  of refusal  is                 
  language provided by DOT&PF, although, the Department of Law                 
                                                                               
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  should provide an opinion regarding the constitutionality of                 
  that language.                                                               
                                                                               
  In response  to Representative Kelly's  question, Mr. Parkan                 
  advised that the Department has not been challenged in court                 
  regarding the existing statute.  He added, the Department of                 
  Law has expressed concerns with the current language.                        
                                                                               
  Representative  Brown asked if  consideration had been given                 
  to make the disposition a  simple surface right, questioning                 
  the constitutional issue.   Ms.  Hickerson replied that  the                 
  federal  patent requires that  the land  be held  for public                 
  purposes  and  used  for  aviation.     There  are  existing                 
  restrictions on federal money used to support airports.                      
                                                                               
  She spoke to  the constitutional  issue that  arose.   Under                 
  Article 8, Section #10 requires public notice of  any lease.                 
  Existing regulations of  the Department have been  in effect                 
  since  the 1970's.   They  require that  there  be competing                 
  applications offered at a public auction.  What occurred was                 
  that  long  term  leases  were   beginning  to  expire,  and                 
  consequently, they were  public noticed.   The tenants  were                 
  very  concerned  with   the  possibility   of  being  in   a                 
  competitive situation, at  which point  the issue became  of                 
  major concern.  A resolution has not yet been found.                         
                                                                               
  REPRESENTATIVE   NORMAN   ROKEBERG   commented    that   the                 
  disposition of the  improvements is important and  should be                 
  addressed  in  the  proposed statute.    Currently, existing                 
  leases leave  to the  Department, the  determination of  the                 
  disposition of  the improvements.    He pointed  out that  a                 
  "truly" market  competitive situation  does not  exist.   He                 
  thought the  State had  created a  "semi-monopoly" in  their                 
  interest of land surrounding the airport.                                    
                                                                               
  Representative Rokeberg noted that the concern has become of                 
  legislative interest because  of the leases and the way that                 
  they have  been drafted.   He recommended that  the language                 
  proposed by the Air Carriers Association be  included in the                 
  proposed legislation.                                                        
                                                                               
  Representative  Parnell  questioned  why fair  market  value                 
  would   not    work   with    the   proposed    legislation.                 
  Representative Rokeberg stated that the free market does not                 
  work because there is no alternative land to select.  A lack                 
  of clarity exists in  the current leases.  The  intention of                 
  the  House  Transportation  Committee  was  to  provide  for                 
  direction to DOT&PF regarding when  the current leases would                 
  expire.                                                                      
                                                                               
  Co-Chair Hanley remarked  that this  is a transition  period                 
  and that provisions  now need to  be created.  He  suggested                 
                                                                               
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  that Section  (e)  be  more clearly  defined  and  that  the                 
  negotiations should be  made at the front-end  of the lease.                 
  The legislation should be "fair"  to those people that  have                 
  made the  initial investments.  He thought  that Section (e)                 
  would not guarantee fairness.                                                
                                                                               
  Representative Davis agreed,  lessee have  had problems  and                 
  concerns  in  dealing with  the State.    He noted  that the                 
  Department recommended that the Findings Section provide the                 
  fair language.   Representative Davis  stated that the  bill                 
  has focused on the findings in  order to provide fairness to                 
  the lessee regarding  the policy.   Co-Chair Hanley  pointed                 
  out that the  findings does not  address the disposition  of                 
  assets.                                                                      
                                                                               
  Co-Chair Foster noted that no bank  would loan to a business                 
  about to expand  if the disposition  of assets had not  been                 
  resolved in regulations.  He added, expansion  possibilities                 
  are  checked by  the  physical  confinements established  by                 
  DOTPF,  and  requested that  they  open up  additional land.                 
  Representative  Foster  predicted that  a  crisis  will soon                 
  exist,  as  new  people come  forward  and  over-bid current                 
  lessee holders.  He suggested that scenario would not happen                 
  if undeveloped land was made available.                                      
                                                                               
  Mr. Parkan agreed  that more  land should be  opened at  the                 
  rural airports, and  that airports  would make more  revenue                 
  with  more  lessee  holders.    He  added  that  the  Alaska                 
  Industrial Development & Export Authority (AIDEA) bank would                 
  be willing to lend on airport leasing conditions.                            
                                                                               
  In  response  to  Representative  Parnell,  Co-Chair  Hanley                 
  recommended that Section (e) should remain in the bill as it                 
  clarifies that deposition  should be addressed.   Mr. Parkan                 
  advised that the Department supports the current language of                 
  the legislation.                                                             
                                                                               
  Representative Rokeberg pointed  out that Section (e)  was a                 
  clause moved from another draft.  Language  presented by the                 
  Air Carriers Association  had been  removed before the  bill                 
  reached the House  Finance Committee.   He recommended  that                 
  additional  language  be  added  to address  the  deposition                 
  problem.                                                                     
                                                                               
  Representative Rokeberg continued, the  original bill, as it                 
  moved from  the Department, contained  a section  addressing                 
  the First Right of Refusal.  In common law, this concept  is                 
  based on the idea that the  modified third party offer would                 
  help generate  what is considered a fair  market value price                 
  at that point in time.  He suggested that the first right of                 
  refusal  no  longer works  in  our society.   Representative                 
  Rokeberg noted that  what has  been utilized  over the  past                 
                                                                               
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  years is a "renewal option" for an extension of a lease.  He                 
  recommended changing  that language  to the  first right  of                 
  offer,   thus  allowing   the  Department   to  create   the                 
  regulations for implementation.                                              
                                                                               
  (Tape Change, HFC 96-108, Side 1).                                           
                                                                               
  Representative Brown asked how the price would be determined                 
  in  the right of the  first offer.   Mr. Parkan replied that                 
  the intent was to have the lease approach fair market value.                 
  Representative  Brown asked  if  something other  than price                 
  could be used in  the negotiations.  Mr. Parkan  stated that                 
  an  option exists in regulation to  give a break on the rate                 
  for public purposes.   Representative  Brown asked how  fair                 
  market value was determined.  Mr. Parkan replied that it was                 
  difficult to do.  A survey is being implemented of all rural                 
  airports leases to identify the values.                                      
                                                                               
  Representative  Brown asked  what a  "hold-over" lease  was.                 
  Mr. Parkan stated that a "hold-over"  lease was one in which                 
  the term had expired, but  the State continues those  leases                 
  on a temporary basis.                                                        
                                                                               
  HB 543 was HELD in Committee for further consideration.                      

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